The difference between revenue and profit and how to calculate both
RevenueRevenue refers to the total amount of money generated and received by a firm through its business activities. Essentially, revenue means sales and is the so-called top line? i.e. the first line on a profit and loss statement. Find out how to put a profit and loss statement together For example, a business owner might calculate their firm’s revenue by multiplying the price goods and services are sold at by the number of units sold. These typical business activities refer to a firm’s operating revenue. Non-operating revenue could come in the form of dividends, interest and royalties and would be included in the net revenue figure. As weve already said, a company can generate increased revenue, but still have operated at a loss. Profit then becomes a useful way to measure the efficiency of a business.
Different kinds of profit
Gross profitRevenue minus cost of goods sold On an income statement, gross profit is the first to appear after revenue. It is calculated by taking total revenue and subtracting the cost of goods sold (COGS). As a metric, it is used by business owners to gain an idea of how much money they have with which to fund the business after their core product is produced.
Operating profitGross profit minus expenses After this comes operating profit gross profit minus all fixed expenses encountered when running a business, such as payroll, rent and utility bills. Operating profit is used to demonstrate the earning power of a business in terms of its regular operations, removing external factors to show its potential profitability. A company may choose to use operating profit over net profit to highlight the financial impact of external overheads. For example, investors can use the operating profit to compare the business with a similar firm operating under a different tax structure.?
Net profitWhen people talk about a firm’s profit, they will usually be referring to net profit the remaining income after all operating costs, debts and expenses. Also known as net income, net profit is the so-called bottom line? the metric at the bottom of an income statement which demonstrates a company’s overall profitability. Net profit is arguably the most important financial metric on the income statement, and the figure most important to investors and shareholders.
Net profit marginThe net profit margin is the ratio of a company’s net income to its revenue, typically presented as percentage. Take a look back over our other difference between? articles to ensure you’ve got the basics of business covered __________________________________________________________________________________
Revenue or profit: Line your pockets or grow your business? When your small business starts making money, you can either choose to take revenue or profit. Will you take the money or re-invest it back in to your business? __________________________________________________________________________________